EEOC proposed wage reporting rules: could be a major problem

Think for a moment about all of the employment law obligations you face as a Human Resources professional or employment legal counsel. As extensive as those are, there is actually very little that you have to report to the federal or state government on a regular basis about your employment activity. You have very few obligations to report to the government on your personnel actions, including compensation – at least as of now. In fact, about the only obligation to report information to the federal government is the annual federal EEO-1 report, which must be filed by companies with 100 or more employees and by federal contractors with 50 or more employees. As you know, the federal EEO-1 currently requires only that you report the number of employees at each covered establishment and corporate-wide, by ten broadly defined job categories and broken down by race, gender, and ethnicity. If adopted, the EEOC’s recently-announced proposed wage reporting rules will require that compensation data be added to the EEO-1 report. In addition to the administrative burden this will cause, employers have real concerns about the ways in which the EEOC promises to use the data.

What is proposed?

On February 1st, EEOC issued a proposed revision of the Employer Information Report (EEO-1) and Comment Request. EEOC proposes that the EEO-1 report be revised starting in September, 2017 to include compensation data. Specifically, EEOC proposes that the report include aggregate W-2 income data for each of the 10 current EEO-1 job categories. The pay data would be broken down within 12 pay bands established in the proposed regulations. For example, you will be identifying the total number of persons by race, gender and ethnicity, within each EEO-1 job category, whose annual W-2 income fits each pay band. The compensation data will be required for all employers with over 100 employees. Federal contractors with fewer than 100 but more than 50 employees will continue to file EEO-1 reports, but will not have to file the compensation data. Also beginning in 2017, all EEO-1 filers will be required to submit their EEO-1 reports electronically.

Why is it being proposed?

EEOC points to two reasons for requiring the compensation data. First, EEOC believes that requiring employers to aggregate pay data by EEO-1 categories will help employers to self-evaluate whether there is disparity in compensation in their organizations based on race, gender, or ethnicity and, if so, consider appropriate corrective action. EEOC’s second stated purpose, and the one causing the employer community real concern, is use of the data for targeting enforcement efforts. EEOC says it will analyze the compensation data to focus wage discrimination investigations on pay disparities. EEOC will rely on the aggregate pay data as a basis to target employers for investigations of suspected pay discrimination

The employer community has understandable concerns about the proposed targeting. Identifying a company for potentially costly and burdensome investigation based on broad band compensation information, it is not a reliable targeting method. Disparities shown in broad band salary information, which includes employees in multiple job titles, is not a good indicator of possible discrimination. Disparity in the wages may well be accounted for by the differences in the specific jobs included in the broad salary band data. Other legitimate non-discriminatory reasons, such as years of service and differing skill sets, may explain the disparity. Of course, legitimate business reasons to explain disparity should come to surface during a subsequent investigation. But that will be only after expensive and time consuming review. Employers are also concerned about EEOC’s stated intention to compare EEO-1 compensation data to the data submitted across industries and metropolitan areas. Again, comparisons on such broad and unspecific data pools carries a high potential for targeting companies without a sufficient basis for suspicion.

Finally, employers are concerned about confidentiality of pay information submitted electronically to EEOC. EEOC points out that its regulations already prohibit disclosure of EEO-1 data and requires that the data be kept confidential. But, employers still have understandable concerns about whether sufficient protections are in place to protect the data when submitted electronically.

Are there any action steps?

EEOC is accepting comments on the proposed revisions up until April 1, 2016. Employers and employer associations concerned about the proposed new obligations could contact their legal counsel to discuss the possibility of submitting comments.

Of course all employers are well advised to be vigilant to disparity in compensation that could be targeted in a discrimination investigation or lawsuit. With the possibility of EEOC investigations increasing under the proposed changes there is all the more reason to be vigilant. If you do consider any sort of comprehensive internal review of your compensation program in part because of possible legal challenges, discuss the review with your legal counsel in advance. Doing so will enhance the possibility of undertaking the review and documenting the results under attorney client privilege.

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